2020 Ontario Marginal Tax Rates

At first glance the provincial income tax rates look great, but after you add in a health premium and up to two surtaxes, the true Ontario marginal tax rates can be increased by more than 56% above their posted rates.
    A horrific province to reside in if you own a small side business on top of your salary and are trying to find out what your tax liability is.


Credit Card Nerd Math

Below we have two charts with the estimated marginal tax rates after the surtax has been added, the amount of after tax earnings for every dollar earned, the amount you need to earn to take home a dollar, the tax rate on dividends received and the tax rate on the capital gains tax that you have.  The first chart is the Ontario income tax by itself and the second chart combines the federal and provincial income taxes in Ontario.
    Some brackets have a range on the tax rate.  This is because the surtaxes are based on tax due and not based on income.  Different personal tax credits will lower the taxes due and might reduce or even eliminate the surtax at these brackets.



2020 Estimated Provincial Marginal Tax Rates in Ontario

Taxable Income

Tax Rate

$1 After Tax Earnings

Amount Needed to Net a $1

Dividend Tax Rate

Capital Gains Tax Rate

first $44,740

5.05%

$0.95

$1.053

-6.83%

2.53%

over $44,740 up to $89,482

9.15% - 10.98%

$0.89

$1.123

1.35%

5.49%

over $89,482 up to $150,000

13.39% - 17.41%

$0.826

$1.211

10.21%

8.71%

over $150,000 up to $220,000

18.97%

$0.81

$1.234

12.38%

9.49%

over $220,000

20.53%

$0.795

$1.258

14.53%

10.27%


Advertisement

Basic Personal Amount: Your first $10,783 in earnings are exempt from provincial income taxes in Ontario for 2020.
Capital Gains: Taxable income derived from capital gains will be reduced by half, making an effective marginal tax rate on capital gains that is 50% of your current marginal tax rate.  For example, if you have $10,000 in capital gains, you would have $5,000 in taxable income from your capital gains.
Ontario Surtax: For 2020, a 20% surtax is applied when your basic provincial tax payable is greater than $4,830, the 20% surtax is added to all tax above payable above $4,830.  An additional 36% surtax is added on when the basic provincial tax payable is greater than $6,182, the 36% surtax is added to all basic personal taxes due above $6,182.  Just so we are clear, there is up to two surtaxes on a tax.



2020 Estimated Combined Federal and Provincial Marginal Tax Rates in Ontario

Taxable Income

Tax Rate

$1 After Tax Earnings

Amount Needed to Net a $1

Dividend Tax Rate

Capital Gains Tax Rate

first $44,740

20.05%

$0.80

$1.25

-6.86%

10.03%

over $44,740 up to $48,535

24.15%

$0.759

$1.318

-1.2%

12.08%

over $48,535 up to $89,482

29.65% - 31.48%

$0.685

$1.459

8.92%

15.74%

over $89,482 up to $97,069

33.89% - 37.91%

$0.621

$1.611

17.79%

18.96%

over $97,069 up to $150,000

43.41%

$0.566

$1.767

25.38%

21.71%

over $150,000 up to $150,473

44.97%

$0.55

$1.818

27.53%

22.48%

over $150,473 up to $214,368

47.97%

$0.52

$1.922

31.67%

23.99%

over $214,368 up to $220,000

51.97%

$0.48

$2.082

37.19%

25.99%

over $220,000

53.53%

$0.465

$2.152

39.34%

26.77%


Federal Personal Amount: : For most Canadians, the first $13,229 in earnings are exempt from Federal taxes in 2020, but if you earn $150,473 or more, the basic amount is reduced.  It is reduced when you earn between $150,473 and $214,368.  If you earn more than $214,368 in taxable income, your basic personal amount would be $12,298. The maximum reduction of your basic personal amount will cost you an extra $139.65. The basic personal amount changes the second highest federal tax bracket from 29% to 29.22%.


Advertisement

Tax on Eligible Dividends in Ontario

Eligible Canadian dividends that you have received will be grossed up by 38%.  You will also be given a 10% provincial dividend credit as well as a 15.0198% federal dividend tax credit on your grossed up dividends.
    Someone that has an annual salary that is less than $44,740 and has been paid $300 in dividends in a non-registered account will have a -6.83% provincial tax rate on their dividends that they have received.  The rate is reduced, because corporate taxes has already been paid on the company's earnings.
    If they have been paid $300 in dividends in a non-registered account they will have a tax rate of -6.86% on their dividends that they have received when adding the federal tax and the federal dividend tax credit.  The combined federal and provincial tax rate on dividends received would be (($1 x 1.38 x 20.05%) - ($1.38 x 25.0198%))/$1 = -6.86% at this bracket.

How the math works;

  • first off your $300 in dividends will increase your taxable income by ($300 x 1.38) = $414
  • You will get a dividend tax credit of ($414 x 10%) = $41.40
  • You will be taxed on your $41.40 at 5.05% and will have your taxes reduced by $41.40
  • This works out to ($414 x 5.05% - $41.40) = -$20.49 in net taxes on your dividends
  • The effective tax rate would be ($20.493/300) = 6.83%

For the other tax brackets, we will assume that you are getting paid $300 in dividends to keep the calculations simple.

  • At the second bracket the tax on dividends paid would be ($414 x 10.98% - $41.40)/$300 = 1.35%
  • At our next two brackets the tax on dividends paid can be as much as ($414 x 17.4% - $41.40)/$300 = 10.21%
  • At our next bracket the tax on dividends paid would be ($414 x 18.97% - $41.40)/$300 = 12.38%
  • At the top bracket the tax on dividends paid would be ($414 x 20.53% - $41.40)/$300 = 14.53%

Provincial Tax Rates: Provincial Tax Rates 2020
Federal Tax Rates: https://www.canada.ca/en/revenue-agency/services/forms-publications/payroll/t4032-payroll-deductions-tables/t4032ab/t4032ab-january-general-information.html#_Toc337712797
Federal Dividend Tax Credit: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns409-485/425-eng.html